The Saudi Energy Ministry directed Aramco to reduce its crude oil production for June by an extra voluntary amount of 1 million bpd; on top of the reduction already committed by the kingdom under the OPEC+ cut deal.
An energy ministry official indicated that the total production cut will be around 4.8 million bpd; from the April production level. This brings the total production for June, after both its targeted and voluntary cuts, to 7.492 million bpd.
He said the new cut was intended to “encourage” other members of the OPEC+ alliance; including Russia, to implement the cuts they have already agreed on.
Drop in fuel prices
Meanwhile, Aramco assessment for May recorded an over 50 percent drop in fuel prices, amid the global economic situation, decline in oil prices, and repercussions resulting from the coronavirus pandemic.
Aramco announced Sunday it was lowering its domestic gasoline prices for May, with 91 grade now priced at SR0.67 per liter instead of SR1.3, and 95 grade falling to SR0.82 per litre from SR1.47 in the previous month.
This also comes in accordance with the governance procedures of pricing adjustment of approved energy and water products, said Aramco.
The company said price adjustment of the local fuels is subject to change, according to changes in export prices of crude oil from Saudi Arabia to the global markets.
Oil expert Rashed Abanamay explained that prices are witnessing great transformations, which coincides with the construction of Aramco’s Jazan refinery, which is the largest refinery of its kind.
The refinery is southern Saudi Arabia; it is to start production mid-year and will produce 210 thousand barrels of low-Sulphur diesel; 71.4 thousand barrels of 91 and 95 grade; about 48.5 thousand barrels of high-Sulphur fuel oil; and 6.7 thousand barrels of liquefied gas.
Abanamay also said that the International Maritime Organization (IMO) has adopted global rules to reduce Sulphur-oxide emissions from ships as per IMO 2020.
Increase demand for low-Sulphur diesel
Starting 2020, the new regulation obliges ships of various types to use low-Sulphur for ships; which increases the demand for low-Sulphur diesel and diesel in general, and raises its price significantly during the coming period. He also noted that the majority of the world’s refineries are not designed to produce this type of diesel.
The expert noted that Saudi light oil prices will also increase because it basically has low-Sulphur levels. It will temporarily meet the new requirements compensating the current huge global shortage in low-Sulphur diesel production.
Saudi Arabia currently has a refining capacity of approximately 2.9 million barrels, without the Jazan refinery. Besides, Aramco’s ownership in foreign refineries in China, US, South Korea, and Japan, according to Abanamay.